[GRAPHIC OMITTED][NOVEON LOGO] NEWS
Noveon, Inc.
9911 Brecksville Road
Cleveland, Ohio 44141-3247
216.447.5000
Investor Relations & Media Contact:
Sean Stack
(216) 447-6494
NOVEON REPORTS CONTINUED SALES GROWTH IN THE THIRD QUARTER
Cleveland, Ohio, November 10, 2003 - Noveon, Inc. today reported selected
financial results for the third quarter of 2003.
Three Months Ended Nine Months Ended
September 30 September 30
2003 2002 2003 2002
----- ---- ---- ----
($M) Unaudited Unaudited
- ------------------------------------------- -------- --------- ----------- ---------
Sales $278.8 $273.2 $855.1 $813.5
- ------------------------------------------- -------- --------- ----------- ---------
Gross profit $79.3 $89.0 $246.9 $266.0
- ------------------------------------------- -------- --------- ----------- ---------
Operating income $25.3 $33.1 $81.7 $100.9
- ------------------------------------------- -------- --------- ----------- ---------
Net income $5.7 $12.3 $21.7 $36.6
- ------------------------------------------- -------- --------- ----------- ---------
Net income excluding special items $6.1 $13.3 $25.1 $39.1
- ------------------------------------------- -------- --------- ----------- ---------
Net cash provided by operating activities $20.8 $34.9 $61.5 $96.8
- ------------------------------------------- -------- --------- ----------- ---------
EBITDA $48.1 $54.3 $148.2 $162.0
- ------------------------------------------- -------- --------- ----------- ---------
EBITDA excluding special items $48.6 $55.4 $151.8 $164.9
- ------------------------------------------- -------- --------- ----------- ---------
Free cash flow $33.1 $45.6 $83.2 $126.2
- ------------------------------------------- -------- --------- ----------- ---------
In this press release, Noveon refers to various non-GAAP (generally
accepted accounting principles) financial measures including EBITDA and
free cash flow. There are tables that provide reconciliations of the
reported GAAP amounts to the various non-GAAP amounts referred to herein.
"EBITDA" is defined as income from continuing operations before interest,
taxes, depreciation and amortization. "Free cash flow" is defined as EBITDA
less capital expenditures plus or minus changes in accounts receivable,
inventory and accounts payable. Management believes EBITDA and free cash
flow provide additional information commonly used by our stakeholders with
respect to both the performance of our fundamental business activities, as
well as our ability to meet our future debt service, capital expenditures
and working capital needs. Noveon has provided financial information for
the third quarter and first nine months of 2003 and 2002 for the results of
operations as reported, as well as for results of operations as reported
excluding special items of restructuring and consolidation costs and the
cumulative effect of an accounting change. Noveon believes this information
is useful to our stakeholders in understanding our operating results and
the ongoing performance of our underlying businesses without the impact of
these special items.
THIRD QUARTER RESULTS
For the quarter ended September 30, 2003, Noveon reported sales of $278.8
million, EBITDA of $48.1 million and net income of $5.7 million. For the
third quarter of 2002, Noveon reported sales of $273.2 million, EBITDA of
$54.3 million and net income of $12.3 million.
Noveon recorded restructuring charges in the quarter of $0.5 million
targeted at further reducing our overhead structure. EBITDA excluding
special items in the third quarter of 2003 was $48.6 million. Net income
excluding special items for the third quarter of 2003 was $6.1 million.
EBITDA excluding special items in the third quarter of 2002 was $55.4
million. Net income excluding special items in the third quarter of 2002
was $13.3 million.
Sales increased 2% in the quarter from the prior year with higher sales
across each segment, reflecting the stronger euro, acquisition-related
revenue primarily in our food and beverage and Performance Coatings product
lines, and higher volumes in our personal care and Estane(R) TPU product
lines. EBITDA excluding special items of $48.6 million decreased 12% from
the prior year as significantly higher raw material and utility costs,
competitive pricing pressure and lower Performance Coatings volumes more
than offset higher personal care and Estane(R) TPU volumes, continued
manufacturing productivity and lower selling, general and administrative
expenses. Free cash flow decreased to $33.1 million in 2003 from $45.6
million in 2002 due to lower EBITDA and higher working capital associated
with increased sales, partially offset by lower capital spending in the
quarter.
Steve Demetriou, Noveon president and chief executive officer, said, "In
the third quarter, we generated our sixth consecutive quarter of sales
growth over the prior year despite the stagnant manufacturing business
environment that persisted for most of the quarter. Noveon's strong focus
and commitment to new product development and bolt-on acquisitions, as well
as the stronger euro, drove our top line results. Particularly strong
results in our personal care product lines were offset by significantly
higher raw material costs, continued sluggishness in Performance Coatings,
and a competitive pricing environment." Demetriou went on to say, "We
continue to see the benefits of ongoing productivity initiatives which
helped offset high raw materials, allowing us to add growth resources,
accelerate new product initiatives and expand globally. These initiatives
will position Noveon for continued growth."
CONSUMER SPECIALTIES
Sales increased 6% to $80.8 million from $76.4 million compared with the
prior year third quarter in our Consumer Specialties segment. Personal care
product lines led segment sales growth with continued strong global volume
of Carbopol(R) acrylic thickener and successful new product introductions
of Aqua SF1, a liquid thickener, and Fixate(TM), a product used in hair
care applications. In addition, the impact of acquisitions and the stronger
euro also contributed to higher sales. EBITDA decreased 2% to $18.8 million
in the third quarter of 2003 from $19.2 million in the third quarter of
2002 as higher personal care, pharmaceutical and food and beverage sales
were offset by substantially higher raw material and utility costs within
the food and beverage product lines.
SPECIALTY MATERIALS
The Specialty Materials segment reported a sales increase of 1% to $102.8
million from $101.7 million compared to the third quarter of the prior year
due to the impact of higher Estane(R) TPU related volume and the stronger
euro, partially offset by competitive pricing pressure across the segment.
EBITDA decreased by 21% or $6.9 million to $25.5 million in the third
quarter of 2003 from $32.4 million in the third quarter of 2002 principally
due to higher raw material and utility costs and competitive pricing
pressure across the segment, partially offset by lower manufacturing costs
and reduced selling, general and administrative spending.
PERFORMANCE COATINGS
Performance Coatings sales of $95.2 million were essentially flat compared
to the third quarter of the prior year as the benefit from acquisitions,
the stronger euro and a favorable sales mix were offset by lower volume
across the segment. EBITDA decreased by 13% or $2.3 million to $15.8
million in the third quarter of 2003 from $18.1 million in the third
quarter of 2002 due to lower volume and substantially higher raw material
and utility costs, partially offset by lower manufacturing costs and the
benefit of acquisitions.
CORPORATE
In the third quarter, corporate overhead expenses excluding depreciation
and amortization decreased by $2.8 million to $11.5 million in 2003 from
$14.3 million in 2002. The decrease is primarily the result of productivity
improvements, cost controls and reduced costs associated with our variable
incentive plans.
NINE MONTHS RESULTS
For the nine months ended September 30, 2003, Noveon reported sales of
$855.1 million, EBITDA of $148.2 million and net income of $21.7 million.
For the nine months ended September 30, 2002, Noveon reported sales of
$813.5 million, EBITDA of $162.0 million and net income of $36.6 million.
For the nine-month period ended September 30, 2003, Noveon recorded
restructuring charges of $3.6 million targeted at further reducing our
overhead structure. EBITDA excluding special items in the first nine months
of 2003 was $151.8 million. Net income excluding special items for the nine
months of 2003 was $25.1 million. EBITDA excluding special items in the
first nine months of 2002 was $164.9 million. Net income excluding special
items in the first nine months of 2002 was $39.1 million.
Sales increased 5% from the prior year reflecting the stronger euro,
acquisition-related revenue primarily in our food and beverage and
Performance Coatings product lines and higher volumes across most of
Noveon's portfolio. All product lines, with the exception of certain lines
within Performance Coatings and polymer additives exhibited organic volume
growth during the first nine months of 2003, with our personal care product
lines growing at double digit rates and Estane(R) TPU showing particular
strength in Asia. EBITDA excluding special items of $151.8 million
decreased 8% from the prior year as significantly higher raw material and
utility costs, lower Performance Coatings volumes, and competitive pricing
pressure more than offset higher volumes across many of our product lines,
continued manufacturing productivity, lower selling, general and
administrative expenses and the benefit of acquisitions. Free cash flow
decreased by $43.0 million in the first nine months of 2003 to $83.2
million due to higher working capital associated with higher sales, lower
EBITDA and a $11.5 million increase in capital spending related to the
timing of capacity-related projects.
Noveon will be hosting a conference call to discuss third quarter results
today, November 10, 2003 at 11:00 AM ET. Domestic callers should dial 1
(800) 588-4973 and international callers should dial 1 (847) 413-2407 and
ask to be connected to the Noveon third quarter earnings call (confirmation
code 7982098). A replay of the call will be available through Friday,
November 14 by calling (domestic) 1 (888) 843-8996 or (international) 1
(630) 652-3044 with the above confirmation code.
Noveon is a leading global producer and marketer of technologically
advanced specialty chemicals for a broad range of consumer and industrial
applications with revenues in 2002 of $1.1 billion. Noveon is headquartered
in Cleveland, Ohio, with regional centers in Brussels, Belgium, and Hong
Kong.
This release contains forward-looking statements that relate to future
events or performance. These statements reflect the Company's current
expectations, and the Company does not undertake to update or revise these
forward-looking statements, even if experience or future changes make it
clear that any projected results express or implied in this or other
Company statements will not be realized. Furthermore, investors are
cautioned that these statements involve risks and uncertainties, many of
which are beyond the Company's control, which could cause actual results to
differ materially from the forward-looking statements. Important factors
that may affect our expectations, estimates or projections include:
o the effects of the substantial debt we have incurred in connection
with our acquisition of the Performance Materials Segment of Goodrich
and our ability to refinance or repay that debt;
o changes in customer requirements in markets or industries we serve;
o general economic and market conditions;
o competition within our industry;
o our access to capital markets and any restrictions placed on us by any
current or future financing arrangements;
o environmental and government regulations;
o the effect of risks of investing in and conducting operations in
foreign countries, including political, social, economic, currency and
regulatory factors;
o changes in the price and supply of major raw materials; and
o the effect of fluctuations in currency exchange rates on our
international operations.
Further information about these risks can be found in the Company's filings
with the Securities and Exchange Commission.
Investors are cautioned not to place undue reliance on any forward-looking
statements contained herein, which speak only as of the date hereof. The
Company undertakes no obligation to publicly release the result of any
revisions to these forward-looking statements that may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence
of unanticipated events.
# # #
Noveon, Inc.
Condensed Consolidated Income Statement
(dollars in millions)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ------------------------
2003 2002 2003 2002
-------------------------------------------------
(unaudited)
Sales $ 278.8 $ 273.2 $ 855.1 $ 813.5
Cost of sales 199.5 184.2 608.2 547.5
------------------------ ------------------------
Gross profit 79.3 89.0 246.9 266.0
Selling and administrative expenses 49.9 51.3 150.6 151.7
Amortization expense 3.6 3.5 11.0 10.5
Restructuring and consolidation costs 0.5 1.1 3.6 2.9
------------------------ ------------------------
Operating income 25.3 33.1 81.7 100.9
Interest expense--net 17.3 18.9 53.5 57.4
Other expense--net 0.5 0.1 0.6 0.2
------------------------ ------------------------
Income before income taxes and cumulative
effect of accounting change 7.5 14.1 27.6 43.3
Income tax expense 1.8 1.8 5.4 6.7
------------------------ ------------------------
Income before cumulative effect of
accounting change 5.7 12.3 22.2 36.6
Cumulative effect of accounting change--net
of tax - - 0.5 -
------------------------ ------------------------
Net income $ 5.7 $ 12.3 $ 21.7 $ 36.6
======================== ========================
Noveon, Inc.
Condensed Consolidated Balance Sheet
(dollars in millions)
SEPTEMBER 30, DECEMBER 31,
2003 2002
---------------------------------
(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 86.4 $ 79.5
Accounts and notes receivable, net of allowances ($7.6 and
$9.0 at September 30, 2003 and December 31, 2002,
respectively) 164.2 135.7
Inventories 149.8 144.1
Prepaid expenses and other current assets 6.4 7.2
---------------------------------
TOTAL CURRENT ASSETS 406.8 366.5
Property, plant and equipment--net 667.0 670.7
Goodwill 403.2 365.5
Identifiable intangible assets--net 175.7 182.1
Receivable from Parent 1.4 1.2
Other assets 46.3 43.1
---------------------------------
TOTAL ASSETS $1,700.4 $1,629.1
=================================
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Short-term bank debt $ - $ 0.4
Accounts payable 119.6 111.2
Accrued expenses 53.5 70.6
Income taxes payable 8.5 5.3
Current maturities of long-term debt 12.2 -
---------------------------------
TOTAL CURRENT LIABILITIES 193.8 187.5
Long-term debt 840.5 847.1
Postretirement benefits other than pensions 5.9 5.8
Accrued pensions 38.5 34.9
Deferred income taxes 18.0 18.1
Accrued environmental 18.2 18.2
Other non-current liabilities 16.9 17.8
STOCKHOLDER'S EQUITY
Common stock - -
Paid in capital 498.0 498.0
Retained earnings (deficit) 19.8 (1.9)
Accumulated other comprehensive income 50.8 3.6
---------------------------------
TOTAL STOCKHOLDER'S EQUITY 568.6 499.7
---------------------------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $1,700.4 $1,629.1
=================================
Noveon, Inc.
Condensed Consolidated Statement of Cash Flows
(dollars in millions)
NINE MONTHS ENDED
SEPTEMBER 30,
2003 2002
---------------------------------
(unaudited)
OPERATING ACTIVITIES
Net income $ 21.7 $ 36.6
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 67.1 61.3
Deferred income taxes 0.1 2.2
Debt issuance cost amortization in interest expense 4.0 4.2
Cumulative effect of accounting change--net of tax 0.5 -
Change in assets and liabilities, net of effects of
acquisitions of businesses (31.9) (7.5)
---------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 61.5 96.8
INVESTING ACTIVITIES
Purchases of property, plant and equipment (39.2) (27.7)
Payments made in connection with acquisitions,
net of cash acquired (16.6) (20.6)
---------------------------------
NET CASH (USED) BY INVESTING ACTIVITIES (55.8) (48.3)
FINANCING ACTIVITIES
Debt issuance costs (1.8) -
Decrease in short-term debt (0.3) (0.4)
Payments on long-term borrowings - (18.9)
---------------------------------
NET CASH (USED) BY FINANCING ACTIVITIES (2.1) (19.3)
Effect of exchange rate changes on cash and cash equivalents 3.3 2.7
---------------------------------
Net increase in cash and cash equivalents 6.9 31.9
Cash and cash equivalents at beginning of period 79.5 120.0
---------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 86.4 $ 151.9
=================================
Noveon, Inc.
Reconciliation of Net Cash Provided by Operating Activities to
EBITDA and Free Cash Flow
(dollars in millions)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ------------------------
2003 2002 2003 2002
-------------------------------------------------
(unaudited)
Net cash provided by operating activities $ 20.8 $ 34.9 $ 61.5 $ 96.8
Add interest expense (excluding debt
issuance cost amortization) 16.0 17.5 49.5 53.2
Current income tax expense, net of deferred
income tax expense 1.8 1.0 5.3 4.5
Changes in assets and liabilities, net of
effects of acquisitions of businesses 9.5 0.9 31.9 7.5
------------------------ ------------------------
EBITDA $ 48.1 $ 54.3 $ 148.2 $ 162.0
======================== ========================
EBITDA from above $ 48.1 $ 54.3 $ 148.2 $ 162.0
Purchases of property, plant and equipment (9.6) (15.5) (39.2) (27.7)
Changes in accounts receivable, inventory
and accounts payable (5.4) 6.8 (25.8) (8.1)
------------------------ ------------------------
Free cash flow $ 33.1 $ 45.6 $ 83.2 $ 126.2
======================== ========================
Noveon, Inc.
Condensed Consolidated Income Statement Reconciliation
of Results as Reported to Results Excluding Special Items
Three Months Ended September 30, 2003 and 2002
(dollars in millions)
2003
--------------------------------------------
EXCLUDING
SPECIAL
REPORTED SPECIAL ITEMS ITEMS
--------------------------------------------
Sales $ 278.8 $ - $ 278.8
Cost of sales 199.5 - 199.5
--------------------------------------------
Gross profit 79.3 - 79.3
Selling and administrative expenses 49.9 - 49.9
Amortization expense 3.6 - 3.6
Restructuring and consolidation costs 0.5 (0.5) -
--------------------------------------------
Operating income 25.3 0.5 25.8
Interest expense - net 17.3 - 17.3
Other expense - net 0.5 - 0.5
--------------------------------------------
Income before income taxes and cumulative
effect of accounting change 7.5 0.5 8.0
Income tax expense 1.8 0.1 1.9
--------------------------------------------
Income before cumulative effect
of accounting change 5.7 0.4 6.1
Cumulative effect of accounting change -
net of tax - - -
--------------------------------------------
Net income $ 5.7 $ 0.4 $ 6.1
============================================
2002
--------------------------------------------
EXCLUDING
SPECIAL
REPORTED SPECIAL ITEMS ITEMS
--------------------------------------------
Sales $ 273.2 $ - $ 273.2
Cost of sales 184.2 - 184.2
--------------------------------------------
Gross profit 89.0 - 89.0
Selling and administrative expenses 51.3 - 51.3
Amortization expense 3.5 - 3.5
Restructuring and consolidation costs 1.1 (1.1) -
--------------------------------------------
Operating income 33.1 1.1 34.2
Interest expense - net 18.9 - 18.9
Other expense - net 0.1 - 0.1
--------------------------------------------
Income before income taxes and cumulative
effect of accounting change 14.1 1.1 15.2
Income tax expense 1.8 0.1 1.9
--------------------------------------------
Income before cumulative effect
of accounting change 12.3 1.0 13.3
Cumulative effect of accounting change -
net of tax - - -
--------------------------------------------
Net income $ 12.3 $ 1.0 $ 13.3
============================================
Note: The special items include the restructuring and consolidation costs in 2003 and 2002.
Noveon, Inc.
Condensed Consolidated Income Statement Reconciliation
of Results as Reported to Results Excluding Special Items
Nine Months Ended September 30, 2003 and 2002
(dollars in millions)
2003
--------------------------------------------
EXCLUDING
SPECIAL
REPORTED SPECIAL ITEMS ITEMS
--------------------------------------------
Sales $ 855.1 $ - $ 855.1
Cost of sales 608.2 - 608.2
--------------------------------------------
Gross profit 246.9 - 246.9
Selling and administrative expenses 150.6 - 150.6
Amortization expense 11.0 - 11.0
Restructuring and consolidation costs 3.6 (3.6) -
--------------------------------------------
Operating income 81.7 3.6 85.3
Interest expense - net 53.5 - 53.5
Other expense - net 0.6 - 0.6
--------------------------------------------
Income before income taxes and cumulative
effect of accounting change 27.6 3.6 31.2
Income tax expense 5.4 0.7 6.1
--------------------------------------------
Income before cumulative effect
of accounting change 22.2 2.9 25.1
Cumulative effect of accounting change -
net of tax 0.5 (0.5) -
--------------------------------------------
Net income $ 21.7 $ 3.4 $ 25.1
============================================
2002
--------------------------------------------
EXCLUDING
SPECIAL
REPORTED SPECIAL ITEMS ITEMS
--------------------------------------------
Sales $ 813.5 $ - $ 813.5
Cost of sales 547.5 - 547.5
--------------------------------------------
Gross profit 266.0 - 266.0
Selling and administrative expenses 151.7 - 151.7
Amortization expense 10.5 - 10.5
Restructuring and consolidation costs 2.9 (2.9) -
--------------------------------------------
Operating income 100.9 2.9 103.8
Interest expense - net 57.4 - 57.4
Other expense - net 0.2 - 0.2
--------------------------------------------
Income before income taxes and cumulative
effect of accounting change 43.3 2.9 46.2
Income tax expense 6.7 0.4 7.1
--------------------------------------------
Income before cumulative effect
of accounting change 36.6 2.5 39.1
Cumulative effect of accounting change -
net of tax - - -
--------------------------------------------
Net income $ 36.6 $ 2.5 $ 39.1
============================================
Note: The special items include the restructuring and consolidation costs
in 2003 and 2002. Furthermore, the cumulative effect adjustment of an
accounting change in 2003 is also a special item included in 2003.
Noveon, Inc.
Reconciliation of Net Cash Provided by Operating Activities to
EBITDA Excluding Special Items
(dollars in millions)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ------------------------
2003 2002 2003 2002
-------------------------------------------------
(unaudited)
Net cash provided by operating activities $ 20.8 $ 34.9 $ 61.5 $ 96.8
Add interest expense (excluding debt
issuance cost amortization 16.0 17.5 49.5 53.2
Current income tax expense, net of deferred
income tax expense 1.8 1.0 5.3 4.5
Changes in assets and liabilities, net of
effects of acquisitions of businesses 9.5 0.9 31.9 7.5
Restructuring and consolidation costs 0.5 1.1 3.6 2.9
------------------------ ------------------------
EBITDA excluding special items $ 48.6 $ 55.4 $ 151.8 $ 164.9
======================== ========================